Paul v Westpac Banking Corporation

The appellant in this matter had been refused leave to amend his claim and statement of claim to include a new cause of action for which the period of limitation had ended, on the basis that the new cause of action did not arise out of the same or substantially the same facts as those for which relief had already been claimed.  He argued that the primary judge erred in making that finding. [2].

The action was brought to defeat a claim by the Bank in respect of a guarantee and associated mortgages entered into to secure repayment of money the respondent lent to a company of which the appellant’s son is the sole director and shareholder.  The loan was used to enable the borrowing company to complete the purchase of a motel.  The appellant’s original claim sought an order under s 87 of the Trade Practices Act 1974 (Cth) that the appellant be discharged from all liability under the guarantee and awarded damages pursuant to s 82 of the Act, or alternatively an injunction pursuant to s 12GD of the Australian Securities and Investments Commission Act 2001 (Cth) to preclude enforcement of the guarantee and damages pursuant to s 12GF of that Act.  [4].

The original statement of claim alleged that the appellant entered into the guarantee as a result of representations by the respondent, which were both misleading and deceptive, as to matters including the borrower’s financial status and the viability of the motel operation. It was also alleged that it was unconscionable for the respondent to enforce the guarantee. [5], [6].

The proposed amendments abandoned the unconscionable conduct claim and pleading, and added a claim and pleading of damages for breach of contract. They also made specific reference to cl 25.1 of the Code of Banking Practice. [7]. That was incorporated in order to advance a case that the respondent breached cl 25.1, a term of the guarantee, by not exercising the requisite care and skill in credit assessment methods and forming its opinion about the borrower’s ability to repay the loan: see Commonwealth Bank of Australia v Doggett [2014] VSC 423 at paras 129–133, 142, and 156.  [8].

At trial, the judge took the view that the new cause of action for breach of contract did not arise out of the same facts as the existing causes of action.  The material facts were the contractual term, the breach, and the damage caused by the breach.  Notwithstanding the existing statement of claim alleged that the guarantee provided that the Code of Banking Practice applied to the guarantee, it did not allege that cl 25.1 was a term of the contract, nor a breach of that term or facts to prove breach, nor that the appellant’s liability under the guarantee was caused by a breach of that term. The new cause of action also made reference to the standard required of a diligent and prudent banker in selecting and applying its credit assessment methods and forming its opinion about the borrower’s ability to repay. [9].

Citing Draney v Barry [2002] 1 Qd R 145 at [57]  the appellant argued that approach was incorrect and the primary judge erred by taking into account possible facts the respondent might allege and seek to prove in the absence of any evidence about those possible facts, concluding that the suggested “change of focus” meant that the new cause of action did not arise out of substantially the same facts as the pleaded causes of action, and not addressing the question whether the additional facts pleaded to support the new cause of action arose out of substantially the same “story” as that which would have to be told by the appellant to support the original causes of action. [10].

The respondent submitted that there was no apparent error in the exercise of the discretion by the primary judge, and that he was not obliged to restrict his consideration merely to the facts required to be pleaded by the plaintiff.  [12].

Noting that the question whether the new cause of action arose out of substantially the same facts was “difficult and finally balanced”, the court concluded that the preferable view was that the contractual cause of action should be regarded as arising out of substantially the same facts as the existing statutory cause of action. [14], [24]. Essentially the court determined that the obligation which the appellant sought to be derived from an express term of the contract found a “close analogue” in the facts relied upon for the existing statutory claim. [18]. In so finding, the court observed that this was not a case where the “substance of the new cause of action [was] different in terms of the acts or omissions which give rise to it, and the adverse consequences for which damages are claimed”, distinguishing Zonebar Pty Ltd v Global Management Corporation Pty Ltd [2009] QCA 121 [23].

The appeal was allowed and the order dismissing the application set aside. [30].